Harvard’s Stavins: A “misguided objection to a progressive policy”

On Friday San Francisco County Superior Court Judge Ernest Goldsmith put implementation of a cap and trade system in the state on hold. He said the Air Resources Board (ARB), the agency tasked with designing the program, hadn’t properly explored other alternatives to lowering emissions.

The cap and trade program is part of AB 32, the Global Warming Solutions Act, which is designed to lower California’s greenhouse gas emissions to 1990 levels by 2020. AB 32 also includes increased fuel efficiency standards and a renewable electricity target of 33% by 2020, both of which are unaffected by the judge’s decision.

Most observers took the view that ARB dodged a potentially fatal bullet in its implementation of cap and trade. Goldsmith could have ruled that a trading scheme was an unacceptable method of reducing emissions. He could also have stayed the entire suite of regulations that the state is pursuing, 69 in all, including a low-carbon fuel standard, local development and smart growth guidelines, and emissions reductions from ships and trucks.

The ruling is the culmination of a multi-year debate among supporters of emissions reduction policies about how to deploy an effective, fair program.

The Sierra Club wrote to Governor Jerry Brown in an open letter last week complaining that companies can offset their emissions by paying companies outside of California to reduce their emissions:

“Excessive reliance on offsets could open up loopholes that undermine the very purposes of California’s AB 32 cap on emissions. Curbing global warming will require a fundamental transformation of our energy economy, a task that cannot be outsourced to other countries. Requiring California’s largest polluters to reduce their own emissions will spur technological advances that can be exported to the rest of the world, bringing green jobs to the Golden State. If polluters are allowed to outsource their emission reductions to other sectors and jurisdictions, the clean-energy revolution will be delayed. Research shows that out-of-state offsets will increase criteria pollution. Air pollution is worst in low-income communities and communities of color, such as the neighborhoods downwind from oil refineries.”

The concern is that if companies aren’t forced to reduce their point-source emissions, the people closest to power plants and refineries will continue to suffer the health consequences.

But cap and trade supporters like Robert Stavins, director of Harvard’s environmental economics program, call the opposition from environmental justice groups a “misguided objection to a progressive policy.” Stavins wrote:

“One expressed concern has been that a cap-and-trade policy might increase pollution in low-income or minority communities. The apprehension is not about greenhouse gases (the focus of AB 32), since these gases spread evenly around the globe and thus would have no discernible impact in the immediate area. Rather, it’s about “co-pollutants,” such as nitrogen oxides, carbon monoxide, and particulates, which can be emitted alongside greenhouse gases.”

“If current limits for co-pollutants are thought to be insufficient, the best response is not to scuttle a statewide system that can achieve AB 32’s ambitious targets at minimum cost. Rather, the most environmentally and economically effective way to address such pollution is to revisit existing local pollution laws and perhaps make them more stringent.”

Tam Hunt, a California-based attorney focused on California regulatory law and policy, tells Climate Progress that he believes the ruling is “a good thing,” suggesting that programs like a carbon fee “would be more direct and easier to implement.”

Although the debate has been ongoing for a few years, it was finally addressed by the court at the 11th hour. The judge says the ARB must go back and show why it made the decision to implement cap and trade. According to Hunt, depending on the length of the review process, it could delay the emissions reduction scheme by another year – perhaps until 2013. In the meantime, California can continue with its renewable energy targets, low-carbon fuel standard and energy efficiency measures.

ClimateWire ended its piece:

Carbon traders, like Josh Margolis, CEO of CantorCO2e, were unconcerned. “He didn’t say CARB’s answer was wrong,” he said of Goldsmith’s ruling. “Like a math teacher, he sent the [functionally equivalent document] back with a note to Mary [Nichols], ‘Show your work.'”

“The sun will come up tomorrow. There will be a cap-and-trade program. We will be trading in 2012.”

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9 Responses to Judge puts cap and trade in California on hold

It’s good to hear that only the cap and trade portion got put on hold temporarily. Thankfully, this wasn’t an instance of judicial activism gone awry since the ruling was very limited. The low-carbon fuel standard will keep tar sands and oil shale products out of the country’s largest gasoline market while the expanded RE and efficiency standards will keep the eventual price on carbon from going too high once the market gets going.

California has been the primary driver of this international cap & trade and that has helped stay the course on this with Canadian provinces. If this ruling delays WCI beyond 2012 start then it could cause that program to unwind as well.

Canada desperately needs the WCI to go forward as it covers over 75% of the entire Canadian economy and is needed to give hope and structure to a national framework for Canada.

Well I reckon the learned judge has done California a favour. He’s left all the initiative intact, and just scuppered the ‘cap and trade’ sop to the grifters and banksters of the financial kleptocracy. The continued thralldom to ‘market fundamentalist’ voodoo economics really is intriguing. The experience has been pretty uniform. Turn something into a commodity and allow the grifters to trade it, and you invariably get speculation, market manipulation, trading in increasingly exotic ‘derivatives’ (fixed bets in a rigged market) gargantuan fees and bonuses creamed off by the insiders, market volatility (as it is more profitable for the insiders) and little real progress in reducing emissions. Much, much, preferable, in my opinion, is a fixed carbon tax, rising predictably over time, to minimise uncertainty for those actually reducing emissions, ie industry and commerce. Hypothecate it to compensating the burgeoning ranks of the poor and R&D in renewables. No bankster is going to reduce emissions one iota, but scientists, technologists, workers and the general public will.

I sometimes wonder about the deal Bob the green Brown has done about the 3-5 year timeframe before the tax turns into a trading scheme? Things are going to be pretty bad by then. Wanna bet it stays as a tax? ME

Mulga and Merelyn – with respect, it is easy to assume that Cap, Allocate and Trade [CAT] would be implemented so badly that it is an inneffective honey pot for profiteers, while by contrast a carbon tax would be both hypothecated and intensified commensurate with the problem.

Yet that is to ignore just how well CAT has been shown to work – achieving its targets far more swiftly that expected – when it is well designed and implemented. It is also to ignore the massive popular opposition that would arise to the annual intensification of a carbon tax as the society is impoverished by both CD & PO.

Of the two options, CAT not only allows a maximized rate of change, it also offers better political durability by avoiding the undermining of responsible governments.

I ain’t partisan on this choice; I’m interested in the most effective and globally cohesive economic instrument to maximise the rate of decline of fossil fuel dependence. Advancing CAT puts me at odds with the GOP and their overseas chapters, who know full well that they can and would make hay with any campaign for an escalating carbon tax. I’ll not walk into that trap or encourage others to do so.

Louis C:
A carbon tax, with the money rebated equally to all residents has worked reasonably well in British Columbia for three years. Economist Steven Stoft’s book Carbonomics: How to Fix the Climate and Charge It to OPEC lays out the most carefully worked out plan for what he calls an “untax” and a world “buyers cartel” that would set a carbon tax worldwide. He gives compelling arguments about the deficiencies of cap and trade and the reasons for why each element in his program is the right choice. Amazingly, no-one in the blogosphere seems to have paid any attention to it. Even the website set up to advance a revenue-neutral carbon tax, http://www.carbontax.org/ doesn’t include Stoft’s book in its large collection of endorsements of a carbon tax. Yet after reading it I wonder why anyone is still talking about cap and trade. I believe this book should be required reading for all of our legislators.
The book has its own website, http://stoft.com/p/carbonomics.html, where you can download it and read it for free by clicking the “read the answer on Google” button. It’s ten bucks at Amazon.com.

I agree with the Sierra Club’s criticism of offsets, but the “green jobs” argument misses the more fundamental flaw in the economic theory underlying offsets: California’s offsets will not reduce global costs of achieving global climate stabilization. They only allow California to reduce its own costs by usurping the lowest-cost emission reductions outside of California, leaving other states and nations with the more expensive options if they adopt similar regulations. Thus, offsets create an economic disincentive for others to adopt cap-and-trade.

Regarding Tam Hunt’s comment that a carbon fee “would be more direct and easier to implement,” this neglects the fundamental legislative mandate underlying cap-and-trade: AB 32 required CARB’s regulations to achieve a “statewide greenhouse gas emissions limit” defined as “the maximum allowable level of statewide greenhouse gas emissions in 2020,” which is not what a fee or tax is designed to do. On the other hand, CARB’s implementation neglected Section 38560 of AB 32, which required CARB to “adopt rules and regulations … to achieve the maximum technologically feasible and cost-effective greenhouse gas emission reductions …” Under CARB’s implementation of AB 32, the language in Section 38560 would not influence the level of statewide greenhouse gas emissions in 2020. In essence, CARB implicitly replaced “maximum” with “cheapest” in 38560, using the conventional economic definition of “cost-effective” to preempt the legislative intent.

An alternative to a carbon fee or tax, which would be even more easy to implement in the context of the existing regulations, would be a price floor set at a level commensurate with some regulatory standard of “cost effectiveness” that is compatible with the maximization objective of Section 38560. If allowances are trading at the price floor (as they are, for example, in RGGI), then the trading system will operate effectively as a tax. (The Governor would also have authority to implement a price ceiling under Section 38599.)

Responding to John’s comment about “A carbon tax, with the money rebated equally to all residents …,” if the objective of rebating is to limit the impact of regulation-induced energy price increases, that could be achieved more efficiently by using the money to subsidize low-carbon energy (e.g. in a manner similar to feed-in tariffs).

John the Painter #6, I’m with you, and Lewis C #5, I am not. You, Lewis, may indeed be correct, in fact you probably are, to say that a ‘..well designed and implemented’ ‘CAT’ scheme would work, but, being a cynic (which, in this world is a euphemism for ‘realist’) I don’t believe that we will get such a scheme. I’m in favour of a tax, hypothecated to compensation for the less well off and R & D and roll-out of renewables simply because I think that has less room for rorting by the grifters. CAT seems to me too embedded in market capitalist ideology and rhetorical mambo-jambo, as well, so I’m agin it for crass ideological reasons, but they’ve rarely let me down in the past. But, as I say, with slightly altered political circumstances, your CAT might work better. As for a scare campaign against a tax, all I can say is it is long past time to take the Forces of Evil on, rather than running away whenever they say boo! In the end, until they are defeated politically and their power to confuse, misinform, manipulate and foment fear and loathing is ended, we will stagger from one moral,economic, ecological and geo-political calamity to another, until the accumulated damage destroys humanity or turns us all into little monsters in the misshapen form of our Masters.

Mulga – you mistake me somewhat – far from running away ‘when they say boo’, I’m for employing the necessary political advance for using the sharpest tool in the box to cut the throat of the fossil fuel industry’s expectations of profitability, and thus to drain the investor confidence from that behemoth. I suggest that letting it bleed out will prove both far quicker and more reliable than waiting for the strength to hold it down and slowly throttle it by escalating fiscal legislation –

I suspect that we are agreed that CAT is the sharpest tool available, but have yet to share the recognition that it can be applied equitably and efficiently far earlier in the curve of rising awareness of the need for radical change. By contrast, achieving a marginally significant level of hypothecated carbon tax will take greater political capital and will then inevitably feed the trollery of reaction while the years roll by and the final window of opportunity for mitigation steadily closes.

Be assured that, as a Commoner, I too seek the end of the plutocracy that has brought us to these straights – in earnest of which I’d be happy to invite you to a dance being planned on Thatcher’s grave – But I see little merit in any fiscal option for GHG control that requires time for greater political renewal before it can be implemented. Therefore I’d urge you to join in demands for the refinement and extension of CAT as it is now applied by the EU and planned by China, Australia and others.